American Family Publishers, 4 States Settle Suit

American Family Publishers, Jersey City, NJ, the magazine clearinghouse and sweepstakes provider, reached a $4 million settlement on May 28 with several states that had filed lawsuits against the company alleging deceptive practices. AFP acknowledged no wrongdoing in the deal.

Florida, Indiana, West Virginia and South Carolina filed the suits last year after dozens of elderly people had flown to Tampa -- where AFP's distribution center is located -- to claim prizes they thought they had won, only to learn otherwise.

Florida's attorney general, Bob Butterworth, an outspoken critic of deceptive sweepstakes, filed a civil complaint in February 1998 charging AFP and spokesmen Dick Clark and Ed McMahon with using various deceptions to sell magazine subscriptions, including suggesting that recipients must make purchases to win, that recipients were part of a select group vying for a prize and that recipients had to respond immediately to prevent someone else from claiming their prize.

Butterworth expanded his state's deceptive practices lawsuit against AFP late last year, adding additional defendants and three counts -- a scheme to defraud, civil theft and lottery. He accused the company of using deceptive billing practices to entice customers into paying two or more times for the same subscription.

Under terms of this new agreement, AFP -- which has awarded more than 300,000 prizes and more than $92 million in cash prizes since 1977 -- has agreed to revise the manner in which it conducts its sweepstakes solicitations in these states and across the country. Among them, AFP must clearly and conspicuously post disclosures and refrain from telling recipients they are winners or members of a winnowed-down group of finalists unless that the case.

Upon receipt of a duplicate subscription payment, AFP must provide a refund or advise the customer a duplicate payment has been made and that a refund is available.

There also will be a $3 million consumer fund, which will be divided equally among all of the signatories of the agreement. An additional $1 million will cover the cost of the investigation. AFP also must make two $10,000 donations to the Muscular Dystrophy Foundation in the names of Clark and McMahon.

The agreement comes on the heels of the Senate Governmental Affairs Committee unanimously passing the Deceptive Mail Prevention and Enforcement Act last month. The bill -- which requires, among other stipulations, that a disclosure be posted on sweepstakes letters and order forms and that marketers prominently state that a purchase does not increase the chances of winning -- does not affect current state laws covering sweepstakes.

The recent AFP settlement, however, signifies that states still play an important role in the rules and regulations surrounding sweepstakes.

"States certainly have significant enforcement power over sweepstakes, regardless of this bill passing committee," said Andrew Lustigman, a New York-based attorney who specializes in marketing and sweepstakes issues. "And, the thing marketers have to remember is that this bill has only passed one committee. It's not law yet."

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